Pensions and inheritance – what to do before April 2027

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Shares Magazine

12 November 2026

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For years, unused pension savings have usually sat outside people’s estates for inheritance tax. From 6 April 2027, most unused pension funds and death benefits will be included, potentially leaving some families with larger tax bills.

That does not mean everyone should rush to raid their pension. Instead, check that your pension nominations, will and retirement plans still reflect your wishes.

What is changing?

Most unused defined contribution pensions currently sit outside the estate for inheritance tax. Beneficiaries may still face income tax in some circumstances, depending on the age of the pension holder when they died.

Inheritance tax exemptions will be available for transfers to a spouse, civil partner and charities, in the same way as non-pension assets now. However, the age 75 income tax cliff edge is not due to change. If someone dies at 75 or over and leaves pension funds to another beneficiary, the funds could face inheritance tax, and the beneficiary may then pay income tax when making withdrawals.

The process also matters

The biggest problem for some families won’t be the tax bill itself. It will be finding details of multiple pensions, locating key paperwork and working out who is supposed to inherit what.

Under the new system, personal representatives and executors will have a larger role in gathering pension information and ensuring any inheritance tax due is paid correctly. Pension providers, beneficiaries and executors may all have to exchange information before any tax can be calculated and assets can be distributed.

That means families could face delays if pension arrangements are unclear or if key documents cannot be located. Anyone with multiple pension pots should consider whether their loved ones would be able to easily identify and access those arrangements when the time comes.

A personal representative must then work out if any tax is due, based on the valuations they’ve obtained for pensions and other assets. Anything left to a spouse or civil partner is exempt from inheritance tax, along with money left to charity from a pension or other assets. For other beneficiaries, the estate can usually benefit from the £325,000 nil-rate band, which has been frozen until 2031.

HMRC says it will update its inheritance tax calculator to help personal representatives do these calculations and work out if any tax is due, as well as how to split (or apportion) the tax-free nil rate band across the different elements of the estate. Some pensions might be invested in illiquid assets such as commercial property, that are harder to value and sell quickly compared to investments like funds and shares.

Personal representatives will have to file returns to HMRC to confirm whether tax is due, and then they must make arrangements to pay any bill. It’s worth noting that if inheritance tax is not paid on time (usually within six-to-seven months of death), late payment interest could start to accrue.

When it comes to pensions, any inheritance tax due can be paid from the rest of the estate (known as the free estate), or the pension beneficiary could pay from their own funds, meaning no deduction from the pension wealth they inherit. A personal representative or a beneficiary can also request that it is paid from the pension funds before they are paid out.

Three steps you can take now

1) Review your pension nominations

Although unused pensions and death benefits are being brought into the inheritance tax net, they will still generally sit outside of your will. Instead, pension providers will usually look at the nominations you’ve made when deciding who should receive the money.

Nominations are easily forgotten, but relationships and family circumstances change. Review every pension arrangement regularly to make sure your choices remain appropriate and your savings reach the right people, sparing your loved ones unnecessary complications at an already difficult time.

2) Review your will and choice of executors

While pensions generally sit outside of your will, this document also appoints the personal representatives for your whole estate. You should check that it still reflects your wishes and that your chosen executors remain willing and able to act.

Even if your will was professionally drafted, the changes might have unintended consequences for some estate plans, particularly where there are charitable gifts, trusts or complex family arrangements involved. A review now can help identify any issues before the new rules take effect and give your family greater clarity about how your affairs should be handled.

3) Review your retirement income and gifting strategy

This is an opportunity to assess or reassess how much income you want, both now and through retirement. The changes might change how you feel about spending more on yourself or perhaps your loved ones.

Gifting can be a powerful way of reducing the value of your estate, but you shouldn’t risk leaving yourself short in retirement. And it’s worth keeping in mind that anything you withdraw over and above your available tax-free cash will be subject to income tax.

Paying 40% income tax today to avoid a potential inheritance tax charge might not always make sense. However, if you have beneficiaries who are higher rate taxpayers themselves in the UK, they could get 40% tax relief on any gifted funds they direct into their own pensions to mitigate some of this.